Providing continuing care for parents

CBS.MarketWatch.com

BOSTON (CBS.MW) -- By some estimates, the older population in America is growing twice as quickly as all other age groups. It was projected that the 85 and older age group is expected to be seven times its size by the year 2050. This suggests that there will be a large number of older people in need of caregiving services.

Family caregivers continue to provide the majority of long-term care to older Americans.

There are also several other trends that suggest that caregiving may be more difficult to provide in the future. The most common of these are an increase in life expectancy, a decrease in the general birth rate, an increase in the participation of women in the workforce and the rise of care costs in excess of inflation.

If you are faced with the responsibility of providing housing or care to someone, the burden can be overwhelming and stressful. There is no easy way to cope and deal with the subjective and objective challenges. Also, there's a lot to learn for those faced with this situation for the first time. Here is some information and guidelines for the issues you will likely encounter:

What most people do

Typically, the need for care of an older individual is addressed by the next younger generation, such as adult children caring for their parents. Although anyone can become a caregiver, family caregivers tend to be women age 55 to 60 and 80 percent do so on an unpaid basis.

In spite of the availability of caregiver services, family caregivers continue to provide the majority of long-term care to older adults and family care is recognized as a critical factor in preventing or delaying nursing home placement. It is estimated that their families provide 70 percent to 80 percent of care for older adults.

As families become geographically dispersed and more women enter the workforce, more families are turning towards formal services such as assisted living facilities, continuing-care communities and nursing homes.

Housing options

As individuals age, often their housing needs change. Some people assume that one simply slips quietly into a nursing home when it is necessary to do so. However, over the last several years, housing options available have expanded. Today, families have a number of choices and options to consider:

Care in the home

Typically care in the home is provided by family members or through support services and skilled caregivers. Home caregivers, who visit the home, are available through hospitals, public health agencies or private agencies. Home care can also be provided on an occasional basis giving relief from the continuous responsibility of the family.

Respite care services offer a source of temporary help and relief from continuous obligations.

There are two financial issues that must be addressed with this option: paying the cost and determining if the caregiver will be an employee or a contractor. The cost is a matter of affordability but the employee issue can be a problem. If the caregiver is an employee you would be required to withhold Social Security taxes, unemployment or workers compensation insurance and make these payments to the appropriate agencies.

A caregiver whose schedule is primarily controlled by your needs and you are their primary employer is an employee. Caregivers hired from an agency are generally not employees. To find out the rules go to www.taxsites.com and check out IRS Publication 926.

Since so many families offer care to their family members while managing their own lives, the need for occasional or frequent relief is surging. Respite care services offer a source of temporary help in the form of a care professional who visits the home on a regular basis to perform duties such as bathing, cleaning, errands, etc. These services provide relief from the continuous obligation and demands placed on the family caregiver.

House sharing

This involves related or unrelated parties living together in a home or apartment and sharing common areas. The advantages are cost sharing and social contact. Before entering into such an arrangement, have a clear understanding of expectations, payment of bills, household duties, meal preparation and so on.

Any money, goods or services paid in exchange for rent is taxable as rental income, is taxable to the extent it exceeds expenses and must be reported on Schedule E of the income tax return.

Accessory apartments

These are separate units within the home and are commonly referred to as in-law apartments.

Check with local zoning laws before adding these to an existing home. Again, rent paid will be taxable.

Elder Cottage Housing Opportunity

ECHO offers small, portable, self contained housing units that can be placed near a single family home so that the elder is near family or friends. The advantage is privacy at an inexpensive price (a 500-sq. ft. one bedroom unit costs around $25,000). A special use permit is required so check with your local zoning laws first.

Consider financing an in-law apartment or an ECHO home by using a home equity loan. These loans can be taken out against your existing home equity to finance the cost of the addition. The interest paid on the loan will likely be tax deductible, so the taxes saved will lower the cost of the loan interest.

Congregate housing

This arrangement generally provides private living space and a kitchen for preparing some meals. Main meals are usually served in a central dining room. These are often in the form of senior apartments and are provided at a reasonable monthly rental fee.

Many good facilities have waiting lists so preplanning is often required. Costs vary and some less expensive options (subsidized and Section 8) may be found.

Assisted living

Individuals who require occasional non-medical assistance (for example with medications, meals, etc.) and desire frequent company may only need what is called custodial care. Assisted Living Facilities, or ALFs, typically provide such services.

Through misstatements or misunderstanding, some people are surprised to be discharged from their ALF upon escalation of their care needs.

The state regulated facilities are designed to provide living arrangements among a community of individuals with similar needs, with some supervision. Often, ALFs promote the concept of "aging in place," inferring that one can stay and receive a lifetime of care.

But be careful. Either through misstatements or misunderstanding, some people are surprised to be discharged from their ALF upon escalation of their care needs. It is for that reason that legal experts highly recommend thoroughly reading and understanding the terms of care and discharge before signing a contract and moving into an ALF.

It's also a good idea to seek the services of a lawyer experienced in elder law. To find one, contact the National Academy of Elder Law Attorneys at www.naela.org. ALF costs vary by region and services offered, but range from $1000 to $3,500 per month. For a checklist to help in the process of selecting an ALF go to www.ccal.org

Continuing care retirement communities

Some facilities offer a blend of custodial and skilled-care services. The Continuing Care Retirement Community, or CCRC, offers assisted living to provide for present care needs and a transition to a skilled facility on premises or nearby when care needs escalate.

That provides the resident the comfort of familiar surroundings in the event there is a change in their care needs. There are several types of CCRC contracts and services, some pay as you go, some paid in advance, some with prepayment entrance fees. The bottom line: hire a qualified elder law attorney to provide expert counsel before you sign the contract.

Nursing homes

When care needs become more demanding, such as medical care and daily assistance with bathing, eating, dressing and mobility (these are the so called activities of daily living, or ADLs), skilled care is recommended. Such care is provided by a licensed nursing home staffed by nurses and other care professionals.

These facilities are regulated by federal and state laws and provide a wider array of long-term care services not offered by ALFs. Cost vary but range from $2,000 to $6,000 per month. Again, carefully review any contracts with a qualified and objective attorney (i.e. not referred by the nursing home) before you make a decision. The costs of nursing-home care are deductible to the extent they exceed 7.5 percent of adjusted gross income.

Nursing home expenses are allowable as deductible medical expenses in certain instances. If you, your spouse, or your dependent is in a nursing home or home for the aged, and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a tax deductible medical expense.

If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a medical expense, and the cost of the meals and lodging is not deductible.

The first step

Experts agree that the first and possibly most important step in successfully addressing the need for continuing care of an individual is to accurately assess the care your family member needs. The assessment must be objective and include not only the care needs today, but the needs that will arise during the term care is to be provided.

A geriatric care manager, for a fee of anywhere from $40 to $150 an hour, will assess the care needs of an individual and recommend an appropriate plan or care provider.

In your search for a care manager, ask if they get paid for placing people by a facility. If yes, look for another and avoid this obvious conflict. To find out more, contact the National Association of Professional Geriatric Care Managers at www.caremanager.org.

The type of care provider that should be considered is largely dependent on the level of care necessary today and in the future.

Financial considerations

The American Council of Life Insurance estimates that in ten years, older Americans will spend over $52 billion of their own retirement savings to pay for nursing home care. That's up 58 percent or almost $20 billion more than today. By most projections, these expenses are rising at a rate faster than inflation, perhaps as much as 5 percent per year.

The cost will vary depending on the care needs, but typically ranges in the $1000 to $3500/month for custodial care, to $2000 to $6000/month for skilled care. To put that in perspective, if an individual needed custodial care for five years and skilled care for another five years, the total cost could be almost $500,000.

While daunting in total, this cost does not present itself all at one time. It does however present different challenges for different situations. Most people will be able to cover the cost of their potential long-term costs using a combination of the following four financial tools:

Medicare/Medicaid

Medicare, the federal health insurance program for people over the age of 65, provides full payment of the first 20 days of nursing home care and only partial coverage for the next 80 days. After that, coverage is provided on the basis of financial need under the Medicaid program.

To be eligible for this coverage, individuals or couples must meet income and resource limits. These limits are specifically set by the state of residence and generally are in the $7,000 to $12,000 per year range for income and in the $2,500 to $5,000 range for resources. Needless to say, this program is considered an if-all-else-fails safety net for many.

Use of home equity

The equity in a home (or the value in excess of the mortgage) provides a potential resource to use to finance the cost of long-term care. Often this is ideal as the decision for care involves changing the living location at some point.

Many elderly homeowners find themselves "house rich but cash poor" and find it difficult to pay for care in the home. One strategy is to enter into a reverse mortgage where the lender actually makes payments to the homeowner for life in exchange for an increasing debt on the home.

The debt is eventually paid off when the home is sold. The ideal candidate for this strategy is someone who wants to stay in his or her home but needs additional income to pay for needed care. These programs are available for homeowners who are 62 and older and who meet strict guidelines.

To find out more, contact Fannie Mae at 800-732-6643 and the US Dept of Housing and Urban Development at 888-488-3487. The payments from a reverse loan are nontaxable and the gain on the eventual sale on the home is tax- free to the extent it is less than $500,000.

Private insurance

For some individuals concerned with the cost of long-term care and who have some assets to protect ($200,000 to $500,000), private insurance is worth considering. For example, the cost of a policy providing $2,500 per month for nursing home costs for a male age 65 could run around $1,500 a year. Compare that with the potential benefit and the cost can be justified.

Such coverage comes with many features and potential glitches. For example, some policies include riders for increasing coverage for inflation, there several options for waiting periods for benefits to begin, options to receive cash back if benefits are never paid (that's right, while it is certain you and I will die, it is not certain we will pass through a nursing home along the way).

Individuals seeking this coverage are advised to check out an employer's plan. Companies are frequently offering this coverage in their group plans. Also, save money by purchasing policies for spouses from the same insurer (package discount) or from associations such as AARP.

Finally, premiums paid for LTC insurance may be tax deductible if, when combined with other medical expenses and premiums exceed 7.5 percent of adjusted gross income.

For those fortunate to have planned for their financial future or with substantial resources from other means, paying for care from their financial assets is an option. Given the uncertainty that this expense will present itself, if this is an option, it is recommended by many advisor.

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